Chevron moves towards 2030 renewables fuel goal with REG purchase: CEO

Chevron is moving forward toward its goal of producing 100,000 b/d of renewable fuel production by 2030 with the $3.15 billion purchase of Renewable Energy Group, the largest US supplier of biodiesel, CEO Mike Wirth said Feb. 28.

"REG was a founder of the renewable fuels industry and has been a leading innovator ever since," Wirth said in a statement.

"Together, we can grow more quickly and efficiently than either could on its own," he said.

Once REG has completed expansion of its Geismar, Louisiana, renewable diesel plant, the facility will have about 720 million gallons of renewable fuel capacity, helping Chevron "get to almost 50% of its targeted [renewable diesel and sustainable aviation fuel] volumes," according to Credit-Suisse analyst Manav Gupta.

REG's Geismar expansion is expected to reach full operations in 2024.

"This translates to 1.5 billion gal annual capacity or almost four DGD 2 sized projects," according to Credit-Suisse analyst, Manav Gupta, referring to renewable diesel projects underway by Diamond Green Diesel – a joint venture between refiner Valero Energy and feedstock provider Darling Ingredients.

DGD is viewed as the gold standard in renewable diesel projects, bringing online ahead of schedule and on budget DGD 2 while other RD projects have experienced delays and higher costs.

"Getting to this target would have been challenging, given permitting and construction delays we are seeing with other projects," Gupta said.

Wider aperture for feedstocks

With the acquisition of REG, Chevron starts at the top of the fuel value chain, which "always begins with feedstocks," Wirth said on a Feb. 28 call to discuss the purchase.

Over 70% of REG feedstocks are wastes or second-use ones, like used cooking oil, distillers' corn oil and tallow enabled by its pretreatment facilities, he noted.

"Combined with our recently announced Bunge joint venture, we are increasing our capability to source reliable, cost-competitive feedstocks to meet our growing renewable fuel production capacity," he added.

Chevron and Bunge recently closed on a joint-venture deal to make renewable feedstocks by doubling the capacity of two of Bunge's soybean processing plants from the current 7,000 mt/d by the end of 2024, enhancing the current supply relationship between the two companies.

However, the scope of that project and others is expanded with the purchase of REG and its existing feedstock supply contracts.

"REG is the largest biodiesel producer by volume in the United States, owns and operates the very first renewable diesel plant in the US and converts a wide variety of lower-carbon-intensity feedstocks to create lower-carbon-intensity fuels," said REG CEO CJ Warner on the call.

Under the terms of the deal, Warner will get a seat on Chevron's board of directors.

Chevron already has a relationship with REG, according to shipping sources, running about one ship up per month, which loads up with renewable diesel at REG's Geismar, Louisiana, facility to bring to California in order to get the benefit of the state's Low Carbon Fuel Standard credits.

However, integration of REG assets and increased feedstock supply will supplement Chevron's plans to convert units at 269,000 b/d El Segundo, California, refinery, including the diesel hydrotreater conversion from petroleum-based feed to renewable feed expected to produce 10,000 b/d of renewable diesel by the end of 2022.

Bye bye biodiesel?

The tightness and subsequent rising of prices in the renewable fuel feedstock market has hurt biodiesel margins, making them less economic, making biodiesel plants ripe for shutdown or conversion.

According to Platts price assessments, so far in the first quarter of 2022, the price of US West Coast renewable diesel with credits, including California's Low Carbon Fuel Standard, the $1/gal federal Blenders' tax credit and RINs -- federal credits used under the Environmental Protection Agency's Renewable Fuel Standard -- are averaging $6.80/gal, while Chicago biodiesel prices are averaging $5.42/gal.

Marathon Petroleum has already converted a Cincinnati, Ohio, biodiesel plant into a pretreatment plant to make renewable feedstock for the Dickinson, North Dakota, renewable diesel plant.

Wirth was non-committal when asked about the future of REG's biodiesel plants.

"Biodiesel has a place in the market today, and renewable diesel has a place in a growing place," he said.

However, REG's Warner noted that a good portion of synergies that come with the combination of the two companies are related to "uplifting biodiesel as part of an 80-20 blend and getting the credits in California and the added value from that."

Building on decarbonization methods "with the larger, slower-moving high-power engines of marine and rail, biodiesel is actually a preferred molecule over renewable diesel, especially in marine," Warner said. "And this is an emerging market where that sector is just starting to decarbonize. So it's definitely an additional outlet for for customers to watch biodiesel demand."

On Feb. 18, REG inked a deal with Bunker Holding Group, the world's largest supplier and trader of marine fuel for a trial B20 and B30 biodiesel in North America and Europe, to get a foothold in the global 70 billion gal/year bunker fuel market.